Agrium Inc. (TSX: AGU)(NYSE: AGU) is up about 14% year-to-date, but the ride has been a volatile one and investors are wondering if now is a safe time to invest.

Here’s what has happened so far in 2014:

A brutal winter caused shipping bottlenecks along key train routes. This affected Agrium’s ability to move product from the prairies to both the U.S. and international customers. The cold weather also caused a spike in natural gas prices, which impacted margins on nitrogen production.

In the spring, the company had to shutdown its Carseland nitrogen facility due to a boiler failure, and the long winter delayed the planting season. In the end, farmers managed to get most of the crops planted, and Agrium’s retail division had a decent first half of the year.

At the end of July, Agrium shut down its Vanscoy potash mine due to a mechanical failure on the hoist system. The incident forced the company to bring forward the planned tie-in of a large expansion project at the plant.

In October, Agrium hit a 12-month low near $93 per share but then rocketed higher on the news that an activist hedge fund had increased its stake in the company. The stock peaked at about $116 per share and is now trading near the $111 mark.

With all the ups and downs, you might think investors should book some profits and just head south for the winter. Let’s see if that is the right choice to make as we head into 2015.

1. Nitrogen margins

The main cost component in nitrogen production is natural gas. In the third quarter, Agrium reported its average natural gas cost was $4.01/MMBtu. Expectations for another cold winter had kept gas prices at that level, but a recent warm spell and abundant supply have sent prices to two-year lows of $3.00/MMBtu.

This is great news for Agrium. Nitrogen represents the company’s largest wholesale segment and the lower costs should have a big impact on Q4 free cash flow. Nitrogen gross margins were $105 per tonne in the third quarter. Those numbers should improve in the next few reports.

Production should also be more robust in 2015 after the completion of a maintenance project at the company’s Redwater nitrogen plant. If gas prices stay around current levels, investors should benefit handsomely in the new year.

2. Potash production

In the Q3 earnings statement, Agrium said it expected the tie-in of the expansion project at Vanscoy to be completed by year-end 2014. This should be a big benefit to shareholders in both 2015, and beyond. The move from development to production will unlock significant free cash flow. At the same time, the added production is coming on line just as global potash demand and prices are moving higher. The reduction in capital expenditures combined with increased production and higher prices should set the stage for strong potash earnings in 2015.

3. Dividend growth

Agrium increased its dividend by 4% when it announced the Q3 earnings. The company has raised the distribution significantly in the past three years. The current payout of US$3.12 per share yields about 3.2%. Shareholders could see strong dividend growth in the next few years if increased nitrogen and potash production drive better margins. Combine this with lower capital spending, and you have the recipe for some healthy cash flow available for distributions.

Should you buy?

Long-term investors should do well, especially given Agrium’s expected free cash flow bonanza in the next few years. In the near term, the company is at the mercy of the Canadian winter and spring planting conditions.

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